John D. Boyd | Sep 25, 2009 3:14PM EDT
The Surface Transportation Board said railroads saw their capital costs rise to 11.75 percent in 2008 from 11.33 percent the year before, raising the amount carriers could recover in freight rates.
The annual cost of capital calculation affects a range of STB regulatory procedures, especially those that involve disputes between carriers and their customers over the rates railroads charge to haul non-contract cargoes under public tariffs.
The agency does not regulate contracts but handles issues involving public tariffs, and can determine which cargoes are exempt from its oversight.
In recent years the STB revamped its methodology for calculating cost of capital, after determining its earlier formula was too generous to railroads and made it easier for them to justify higher freight charges.
Capital cost includes readily identifiable debt expenses, plus the hard to define returns needed to woo equity. The new formula curbed the equity cost level railroads could claim.
But under challenge by carriers, the STB began to back up its new method with a second formula, and its latest cost determination includes both measures.
Contact John D. Boyd at jboyd@joc.com.
